Trade in Employment domestic labour inputs sustained by foreign final demand Last updated: September Growing economic integration worldwide has increased the sensitivity of employment in one country or region to changes in demand in other countries or regions. However, traditional statistics do not reveal the full nature of interdependencies - notably how consumers in one country may drive production and thus, sustain jobs in economies further up the value chain.
Originally published June, To read this article in full, please go to the bottom of this page. One of the most publicized and long-awaited business provisions contained in the Omnibus Budget Reconciliation Act ofP.
However, section cannot be analyzed in isolation. Since it comes into play whenever there is an allocation of consideration to an amortizable section intangible, a basic understanding of the allocation rules of sections and h 10 is critical.
PART TWO of this Outline contains introductory material relating to sectiondescribes the statutory regime and the regulations, and illustrates through examples the application of section in various acquisition transactions. Historically, goodwill was treated as a nondepreciable, capital asset.
A seller often has no basis in any goodwill associated with its business.
In contrast, tangible assets other than land and inventory generally consist of depreciable property described in section Amounts received in exchange for a covenant not to compete were typically amortizable by the purchaser over the period for which the covenant ran, and were ordinary income to the seller to the full extent of the payments.
Competing Interests Prior to the Tax Reform Act of the " Act"purchasers and sellers generally had competing interests with regard to the allocation of consideration in the sale of a business. A purchaser generally wished to allocate as much consideration as possible to assets with short depreciable or amortizable lives.
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Accordingly, given a choice between allocating consideration to goodwill or to a covenant not to compete, the purchaser would generally prefer an allocation to the covenant.
In contrast, the seller wished to take advantage of lower capital gains rates. Thus, the seller would generally prefer allocations to goodwill, a capital asset, to allocations to a covenant not to compete, which gives rise to ordinary income.
To the extent that any of the transferred assets had comparatively short depreciable lives, the parties might be able to agree on an allocation of additional purchase price to such assets. However, such an allocation could possibly increase recapture income under section and thus result in ordinary income which the seller would seek to avoid.
Litigation Over Purchase Price Allocations Prior to the enactment of section as part of the Act, taxpayers and the government had frequently skirmished over purchase price allocations.
Selling taxpayers sought to disregard allocations made to covenants not to compete, and purchasing taxpayers sought to allocate additional amounts to such covenants and away from goodwill. In cases where the contract of purchase and sale was silent as to the allocation of purchase price, it was possible for the parties to "whipsaw" the government by taking positions inconsistent with each other, but without invoking any elevated burden of proof in the courts.
Courts were, in general, reluctant to allow taxpayers to disregard the allocations made in a contract of purchase and sale. Some courts went further and adopted a test whereby the taxpayer could disregard allocations in the contract of purchase and sale only by adducing proof which would be admissible under state law to alter the construction of the contract or to show its unenforceability because of mistake, undue influence, fraud, duress, etc.
Substantial litigation also ensued where the contracts were silent as to the allocation of purchase price among the tangible and intangible assets transferred.
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The Act Congress believed in that the government lacked sufficient resources to challenge effectively cases in which the parties misstated the value of assets when making allocations in connection with the sale of a business.
II, at Note that as part of the Act, the differential between capital gains rates and ordinary income rates was eliminated, so that the parties would no longer have substantial competing interests in making purchase price allocations.
Congress decided to adopt the residual method already provided for in regulations under sectionin order to ensure that the value of the business in excess of the value of tangible assets was allocated to goodwill or some similar intangible, rather than to tangible assets with short depreciable lives.
Adopting this method also equalized the treatment of asset acquisitions and qualified stock purchases under section Summary of Section Section applies to any "applicable asset acquisition. Regulations broadly define "assets constituting a trade or business" as consisting of any group of assets i the use of which would constitute an active trade or business for purposes of sectionor ii to which goodwill or going concern value could under any circumstances attach.
To what extent will this change be incorporated in the section regulations pertaining to the definition of "assets constituting a trade or business?The Federal Government increasing its expenditures through expansionary fiscal policies, to offset the decrease in aggregate demand.
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